economies of scale

Question 1

What are internal EOS?

Answer 1

occurs within a single firm in the market

Question 2

What are external EOS?

Answer 2

the whole industry benefits

Question 3

What are examles of external EOS

Answer 3

1)better transport and infrastructure
2)suppliers and R&D firms move closer(clustering)

eg Silicon Valley USA benefits from increased broadband infrastructure and university outreach - Stanford research park

Question 4

What are technical EOS?

Answer 4

use of specialised capital and technology to increase productivity eg indivisibilities in airplane duopoly
eg 2 containerism -law of increased dimensions ^surface area= 4x ^volume

Question 5

What are risk-bearing EOS?

Answer 5

firms can invest in new industries as their income is diversified so if one industry is facing declining demand, the firm can absorb the cost of failure easily as costs are spread out eg Apple diversifying into Appstore, AppleTV, Airtag

Question 6

What is MES?

Answer 6

the lowest level of output at which the minimum possible average costs can be achieved- when all EOS are exploited

Question 7

what are returns to scale?

Answer 7

the effect on output of increasing all FoPs by the same proportion

Question 8

What are increasing returns to scale?

Answer 8

when an increase in all factor inputs leads to a more proportional increase in output

Question 9

when do constant returns occur?

Answer 9

after the MES

Question 10

What firms have high MES

Answer 10

high fixed costs, low variable costs (natural monopoly)

Question 11

What are the causes of DEOS?

Answer 11

1)lack of coordination between departments
2)increased number of workers means that workers are less valuable to the firm, so staff moral decreases

Question 12

how to calculate EOS?

Answer 12

AC=TC/Q ( Q rises faster than AC)

Question 13

how to calculate returns to scale?

Answer 13

(% change in output) / (% change in input)

Question 14

what is the reason for an L shaped LRAC

Answer 14

DOES are offset by continued reductons in AC so LRAC doesn’t curve upwards

Question 15

Why are returns to scale less predictable?

Answer 15

returns to scale occur in the long run, and nobody can predict the changes in technology or market conditions,economies of scale are less predictable and less certain than short-run diminishing returns. There is the possibility of long run decreasing returns to scale instead